Dirks & Company, Inc. Toll: 1-800-774-0778
18 East 53rd Street - 6th Floor Phone: 212-832-6700
New York, N.Y. 10022 Fax: 212-759-7264
May 7, 2002 Ray Dirks: 212-832-2294
Follow-up Report CFA: 212-832-4198
Strong Buy Recommendation Sal Nuccio: 212-829-3987
Reliant Interactive Media Corp.
(OTCBB – RIMC)
Pro Forma Figures Reflecting Merger with Thane International, Inc.**
Year Operating P/E Sales
Current Price: $6.55 (to 12/31) E.P.S. Ratio (millions)
1 Year Price Target $30.00 1999* $(0.25) NM $ 21 Shares Outstanding: 35,323,784 2000* 0.22 8.9x 100
Market Capitalization: $211,940,000 2001* 0.30 5.8 168
2002E** 0.65 9.2 600
2003E** 1.30 4.6 1,200
* Not including merger with Thane International, Inc.
** Assumes completion of merger with Thane International. Each current share of Reliant becomes 0.305 shares of new Thane shares
Summary and Recommendation
Reliant has filed documents with the Securities and Exchange Commission encompassing the merger with Thane International, Inc., which is a privately held company. This sets the stage for a dynamic combination: the extraordinary sales capability that has been clearly demonstrated by Reliant’s top people, and the marketing depth, international reach and financial backing enjoyed by Thane. Very importantly, Thane’s largest shareholder, H.I.G. Capital, LLC, of Miami, is backed by a number of financial powerhouses, including Goldman Sachs, Credit Suisse First Boston, First Union and General Electric.
While Reliant’s stock price has roughly doubled since our initial purchase recommendation (September 19, 2001- $0.85), we think this performance is merely a harbinger of substantially greater success to come. The company’s shareholders also will benefit from listing on NASDAQ, which will occur when the deal is completed. Following Reliant’s special meeting of shareholders to vote on the merger on May 20, the stock will trade under the name of Thane International, Inc.
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No statement or expression of opinion or any other matter herein contained is, or is deemed to be directly, an offer or a solicitation of an offer to buy or sell the security referred to above. The information contained herein is taken from sources believed to be reliable, but its accuracy cannot be guaranteed. There can be no assurance that future recommendations by these sources will prove profitable or will equal the performance of past recommendations. The principals and employees of the Company may trade in securities mentioned herein subject to self-imposed restrictions: such affiliated persons may at any time hold positions in issues recommended within this publication. The Company may be a market maker in the securities referred to herein.
Thane sells on a worldwide basis a very diverse line of consumer products, including electronics, fitness, health and beauty lines and housewares. These products have been marketed through many channels, including direct-response television, print advertising, telemarketing, retail outlets, catalogs, home shopping networks and the Internet in more than 80 countries.
The two companies had total revenues of more than $465 million (about $300 million from Thane and $167 million from Reliant) and EBITDA of nearly $40 million in 2001.
As we see it, the two companies now have the momentum in place for combined sales, without acquisitions, to climb well over $600-million in calendar 2002. Additionally, we would expect synergies to produce greatly enhanced profit margins.
The most direct competitor of Thane International is Direct Focus (DFXI), which sells home fitness equipment (Nautilus) and similar products via television infomercials and commercials, and the Internet.
Direct Focus has a market capitalization of $1.5 billion. At a price of $43.00 it sells for 20 times trailing 12 months earnings of $2.10 per share. Sales were $425 million for the 12 months ended March 31, 2002, slightly less than that of Thane International and Reliant.
Profit margins are substantially higher for Direct Focus as compared with Thane, but the merger documents filed recently suggest that meaningful cost savings coupled with substantial revenue enhancements through established distributed channels will increase Thane’s margins dramatically.
We would note that Value Vision International (VVTV), the nation’s third largest television home shopping network, which also sells merchandise via a companion Internet site, has a market capitalization of about $715 million. That is equal to 1.6 times its trailing 12 months sales of $457 million.
Applying that 1.6 multiple to the $465 million in total sales that we estimate for Thane and Reliant in 2001 would suggest a market capitalization of some $744 million, or, $21.00 per share, on an estimated 35.3 million common shares to be outstanding.
Applying that same 1.6 multiple to the more than $600 million in sales that we anticipate for the year 2002 would suggest a market capitalization of about of $1 billion, or $28.00 per share. Moreover, the market valuation is likely to be enhanced as the investment community discovers what is happening at Thane/Reliant and as an economic recovery starts to gain momentum this year.
We continue to strongly recommend purchase of the shares of Reliant Interactive Media by aggressive long-term, growth-oriented investors seeking the possibility of substantial capital appreciation.
We believe H.I.G. Capital has a substantial number of attractive acquisition opportunities that it plans to present to this company after the merger. This will be the first public vehicle affiliated with H.I.G. As the stock trades on NASDAQ, we believe our $30 target price will be reached in 2003.
An important development Reliant shareholders should note is that Kevin McKeon of Reliant has been named chief financial officer of the combined companies. Mr. McKeon previously was the CFO of Home Shopping Network, a major publicly-held, direct marketing company.
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